What’s it Cost to Deal with Climate Change?

Here’s an excerpt from my upcoming book Hot Water that tries to answer the big one. (Note: unedited, not final, no footnotes – all data references to World Energy Outlook 2012, Energy Information Agency)

How much will it cost to turn down the thermostat? (Spoiler alert: It costs a coffee and donut, once a week, to save ourselves. Seriously.)

Depends how fast and deep we cut emissions. The faster we act, the cheaper it is. The deeper we go, the more expensive it gets. But let’s not beat around the bush – it’s a huge job and will cost lots of money. Trillions of dollars. But it’s relative: to what we already spend on fossil fuels; to the size of the economy; to the time it takes to spend it; to what we get in return; and, most importantly –to what happens if we don’t spend it.

Recall (Chapter 4) that typical climate cost and benefit analysis is a mugs’s game. Proponents (and critics alike) try to justify the cost of (in)action by calculating the benefits. We might save some of our agriculture, forestry and fishery industries, for example. Or reduce damage from hurricanes, drought and floods. What’s that worth? To answer, we use models loaded with assumptions like the discount rate, damage function and dumbed-down climate science.

Let’s skip the nonsense of putting a dollar value our ecosystem. Call the benefit saving ourselves and our way of life, and peg its value at zero dollars. Let’s drop all claim to economic benefit. Not just saving our fisheries or agriculture. Not just avoiding mega-storms and droughts. But no economic stimulus from a redistributed carbon tax. No lowered imported energy bills. No health benefits from cleaner air. No upside for energy security. If we can accept the worst case, the economic arguments are over.

We’re buying climate insurance. It gets us a temperature target. The cost is incremental costs over business-as-usual. We can express it in dollars per tonne of carbon. Or we can put it in absolute terms – the ‘trillions of dollars’ language critics often use to scare us into inaction. Let’s use that language. With no benefits. And see how bad it really is.

The IEA has four scenarios representing pathways to 2035. Each has a different level of warming. Our climate insurance is the cost of subsidies for clean energy (direct and indirect) plus the carbon price (this double-counts some costs because carbon costs can fund the subsidies – again, the worst-case).

The Current Policies Scenario is business-as-usual. We don’t do much of anything and hit 6C. Bleak! For perspective, we still need to invest nearly $38 trillion between now and 2035 to meet growing demand, most of it on oil and gas. In the New Policies Scenario we make a bit of effort by supporting renewables with $4 trillion in additional subsidies. There’s carbon pricing in China and a few other countries. The temperature target drops to 3.6C. Still bleak! The most aggressive is the 450 Scenario. Emissions peak by 2020. We get a coin toss’ chance of limiting warming to 2C. Better! That requires an additional $16 trillion in investment and more aggressive carbon pricing.

This is starting to look expensive. $20 trillion in extra investment. Plus something like another $20 trillion in carbon costs. Wow! Maybe Lomborg’s right, and this is a bad deal.

Hang on a moment. The 450 Scenario includes the Efficient World Scenario, where aggressive investments in energy efficiency cost nearly $12 trillion, but save $17.5 trillion in reduced energy use and another $6 trillion in avoided supply infrastructure. We make $11.5 trillion. It’s Planet Traveler on steroids! There’s more. We could add the $18 trillion in increased GDP from more efficient allocation of resources. And the benefits of lower fuel costs due to lower demand. And … But we’re looking at the worst-case – let’s not count all that extra goodness.

The final bill – no economic benefits included – drops to $30 trillion. Call it a trillion a year. There’s seven billion of us. That’s $142 a year, per person. Climate insurance to give us a decent chance at saving civilization comes in at … three bucks a week for every man, woman and child on the planet.

A weekly coffee and donut to save us from ourselves. Maybe people in rich countries have to buy a few coffees, because the poor can’t afford to. That’s really such a bad deal?

But, of course, this overstates the cost. Someone’s going to invent new technologies, make all that equipment, engineer a new grid, export technology to India and China. The world’s economy needs a shot in the arm, and rebuilding our energy infrastructure is one way to do it. To say nothing of that $18 trillion that comes from a more efficient use of our resources. And we get all those benefits that are so hard to calculate: fewer crazy storms, less drought and wildfire, maybe we’ll even save the global fishery.

Look at it another way. The IEA assumes a 3.5% annual growth in the global economy, from $70 trillion now to $165 trillion by 2035. Our insurance costs a delay of a few years in doubling our wealth. The cost of going without insurance is the near-certainty our economy shatters.

There is no cost to dialing down the thermostat. There is only benefit.